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Don't just manage - take informed risks!

Updated: Dec 1, 2022

Informed risk taking

In my previous posts I've spoken about the origins of risk management, the terms and definitions associated with the profession and the reasons why organisations must manage risk.

And even though I have emphasised that risk is a two-dimensional concept - that is, there are threats and opportunities - there still seems to be an persistent assumption that a discussion about risk is a conversation focused in the negative.

As I've mentioned previously, organisations and risk teams that are solely directed at negative impacts are only doing half the job.

Risk management's most powerful element is the provision of better, more relevant data for decision making, or as some call it, informed risk taking.

Every decision is a risk decision - consisting of lots of minor or inconsequential decisions made almost automatically, right through to a very few significant, potentially life-changing choices. And this applies to us as individuals and to organisations.

I'm not suggesting for a moment that a risk management function that is well resourced, mature and supported by the C-Suite means decision makers will have perfect information for decision making.

In fact, those that have studied decision theory know that there is a cost benefit analysis to be done in the quest for perfect or near-perfect information. Sometimes, the cost of the additional information is not justified given the minor increase in certainty. A simple example of this analysis is at the website of Hubbard Research.

No, what I am instead suggesting is that in many cases, information that is relevant or pertinent to the decision at hand is often ignored, overlooked or taken out of context. The discipline needed in risk management is in conducting risk identification, assessment and analysis in such a way that all the appropriate data is unearthed.

And of course, the situation needs to be continually monitored for any change in the environment or in the context of the risk itself.

The key to making the best of the conditions confronting the organisation, such as change, disruption, innovation and transformation, is to carefully consider the opportunities and the threats and the balance of benefits and potential downsides.

Andrew Martin's paper 5 startup tips for taking informed risks suggests 'Successful entrepreneurs are neither oblivious nor indifferent to risk; they understand the difference between assuming risk and engaging in risky behaviour'.

So once a conscious decision to take on the risk has been made, the focus can then move to actions that will maximise the chance of success, or controls that will mitigate the impact of a threat.

Yes, risk management has a role to play in preventing or minimising events that can have a detrimental impact on the organisation.

But even more importantly, the remit of risk management should be to better inform decision making - allowing organisations to more confidently take informed risks. The outcome? More reliable creation of value for the organisation.

My focus is on helping organisations up-skill and inform the operational business units on their role in informed decision making and the risk management process. Please visit my website, contact me via email or give me a call on 0404 829 040 to find out more.

Proximity Risk & Assurance

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